The United States Federal Reserve has once again chosen stability over speculation. In a widely anticipated but closely scrutinised decision, the central bank announced in the early hours of Thursday morning that it would keep its benchmark interest rate unchanged at 4.25% to 4.5%.
This marks the fifth consecutive meeting where no change was made, even as internal disagreement grows and political pressure intensifies.
The move comes at a time when many investors were hoping for signs of a policy shift. Instead, the Federal Open Market Committee stood firm, reinforcing its cautious approach to inflation and signalling that more economic data is needed before any adjustment can be considered.
Interest Rate Decision Reflects a Divided but Cautious Fed
The vote to maintain the current rate was not unanimous. For the first time in over thirty years, two Fed governors dissented.
Michelle Bowman and Christopher Waller, both appointed by President Trump, supported a cut of 25 basis points, arguing that the economy could benefit from looser financial conditions.
Their stance reflects growing impatience among some policymakers who see signs of weakening growth and pressure on the labour market.
Chair Jerome Powell, however, remained aligned with the majority view. He stated that while economic growth has moderated and inflation remains above target, the existing policy stance is still appropriate.
Powell emphasised that the Fed’s approach continues to be shaped by its dual mandate of maximum employment and stable prices.
Recent economic indicators support this careful stance. Gross domestic product in the second quarter rose by 3%, recovering from a 0.5% contraction in the first quarter.
However, much of this improvement was driven by falling imports rather than increased domestic demand. Consumer spending has softened, and business investment has become more selective, focusing on equipment and intangible assets.
In the labour market, conditions remain healthy but are showing signs of slowing. Job gains averaged 150,000 per month over the past three months, a solid figure by historical standards but lower than previous periods.
The unemployment rate is holding at 4.1%, while wage growth continues to moderate. These figures suggest the market is still functioning well, but there is less momentum than before.
The Fed’s decision to stay on hold has tempered expectations for a near-term cut. Market projections for a rate reduction in September have dropped below 50%, compared to nearly 70% earlier in the week.
The policy statement offered no hint that a change was imminent, and Powell’s later comments only reinforced the idea that patience remains the guiding principle.
Powell Addresses Inflation Risks and Political Pressure
Following the decision, Jerome Powell delivered a press conference that highlighted the challenges facing the central bank.
Much of the uncertainty stems from the ongoing effects of trade policy, particularly new tariffs introduced by the Trump administration. These changes are beginning to influence consumer prices, and Powell acknowledged that inflation expectations have moved higher as a result.
He stated that while inflation has eased from its peak in 2022, it remains somewhat elevated. Core personal consumption expenditures rose by 2.7% over the past year, while the broader PCE index increased by 2.5%.
Powell noted that services inflation is slowly declining, but tariffs are pushing up prices for certain goods.
The Fed Chair reiterated that it is still too early to determine how these factors will influence the economy in the long run. He described the current situation as “early days,” explaining that the central bank needs to observe more data before making any decisions.
This includes new inflation figures and the upcoming July employment report, both of which will play a role in shaping the Fed’s next steps.
Powell also responded to growing criticism from President Trump, who has repeatedly called for immediate rate cuts.
The President argues that high rates are limiting mortgage accessibility and increasing borrowing costs. While Powell acknowledged these concerns, he made it clear that the Fed is focused on inflation control and long-term stability, not short-term political gains.
In a rare moment of levity, Powell described a recent visit from the President to the Fed’s $2.5 billion headquarters renovation project as “nice,” even as reports suggest the meeting included disagreements over spending and policy.
Despite the political backdrop, Powell maintained that data, not external pressure, drives the Fed’s decisions.
The Fed also continues to monitor the broader labour market. Powell pointed out that job creation is slowing and that tighter immigration policy could affect labour supply in the coming months.
While he believes the market remains in balance, the risks of further weakness are being closely watched.
The Fed’s decision and Powell’s comments had an immediate impact on financial markets. Bond yields rose modestly, while major US equity indices closed slightly lower.
The S&P 500 and Dow Jones Industrial Average both declined by around 0.5%, a reflection of investor uncertainty rather than outright disappointment.
Risk assets showed more volatility. Bitcoin fell nearly 2% to touch $115,000 after Powell’s press conference, while other digital assets such as Ethereum and Solana dropped by about 4%.
The market had priced in a more dovish tone, and Powell’s insistence on caution triggered a round of selling.
From a macro perspective, the market remains in a neutral zone. Profit-taking has slowed compared to earlier in the month, and while some indicators suggest reduced momentum, there is no clear direction yet.
The next major movement will likely depend on whether upcoming data changes the Fed’s outlook ahead of the September meeting. Investors are now preparing for more detailed signals from the Fed over the coming months.
Conclusion
The Federal Reserve has sent a clear message by holding interest rates steady. Despite internal disagreement and growing political pressure, the central bank remains committed to a data-driven approach.
Jerome Powell emphasised that while inflation has decreased, it remains above the long-term target. With growth slowing and the labour market showing early signs of strain, the path forward remains uncertain.
The coming weeks will be crucial as new data on inflation and employment becomes available. For now, markets are adjusting to a more cautious tone from the Fed.